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Edited Transcript of ACE.MI earnings conference call or presentation 13-May-20 3:00pm GMT

Q1 2020 Acea SpA Earnings Call

Rome Jun 22, 2020 (Thomson StreetEvents) -- Edited Transcript of Acea SpA earnings conference call or presentation Wednesday, May 13, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Elvira Angrisani

ACEA S.p.A. - Manager of IR

* Giuseppe Gola

ACEA S.p.A. - CFO, CEO, Director of Finance, Administration & Control and Director

* Stefano Antonio Donnarumma;Chief Executive Officer

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Conference Call Participants

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* Emanuele Oggioni

Banca Akros S.p.A., Research Division - Analyst

* Enrico Bartoli

MainFirst Bank AG, Research Division - MD

* Javier Suarez Hernandez

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst

* Stefano Gamberini

Equita SIM S.p.A., Research Division - Analyst

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Presentation

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Operator [1]

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Good evening. This is the Chorus Call operator. Welcome to the presentation of the ACEA Group's Q1 2020 results. (Operator Instructions)

And now I would like to hand you over to Mrs. Ira Angrisani, IR Manager of ACEA Group. Please go ahead.

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Elvira Angrisani, ACEA S.p.A. - Manager of IR [2]

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Good afternoon. Thank you very much for attending the ACEA Group's Q1 2020 results. Mr. Donnarumma, the CEO, will start the presentation and then he will hand you over to Mr. Gola, the CFO, who will be illustrating the financial results.

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Stefano Antonio Donnarumma;Chief Executive Officer, [3]

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Good afternoon. Thank you very much for attending. I'll be referring to Slide #1 since the presentation has already been made available.

But I will not confine myself to the results of Q1 only, as I will be referring to the latest 3 years -- the past 3 years as a whole. As you may know, the past 3 years have been very positive, very good for the company. In 2017, we disclosed a very challenging business plan, which enabled us to reach and exceed the targets that we have set ourselves. In 2017, we already reached a growth of EBITDA from EUR 800 million in 2017 to EUR 1.042 billion in 2019, with an annual growth -- average annual growth rate of 10%, which was accompanied by substantial investment, especially our regulated infrastructure has -- had been announced when the current Board of Directors took office. So we focused on the core business of the company. Substantial investment that increased from EUR 532 million to EUR 793 million in 2019, and CapEx is still growing in line with our business plan.

We created value for our shareholders. We paid out dividends. Dividends have been growing constantly with great satisfaction for all the investors. And we have reported double-digit growth of our dividends year-on-year. And I must say that our stock performed very well, starting the presentation of 2017, when we exceeded EUR 18 per share. And then the value of our stock remained high until the beginning of the coronavirus crisis.

We, as many other companies, suffered from the pandemics, and this impacted on the value of our stock. Our stock is, however, recovering, and we reached EUR 16.41 on the 12th of May. So we are in line with the past values. I believe that all this bears witness to the approach used by the company and by the management, top management, middle management as well as over the operations to devote all the know-how and all the energies available to achieve such commendable results.

We tackled the water emergency in Q3 2017 that was at the first quarter after this Board took office. This clearly stressed the operations and the organization of the company substantially. But nevertheless, we managed to face the emergency and planning our investments, the maintenance services and so forth. So we managed to improve progressively.

We have focused very much on the training of our human resources. We have invested substantially on our HR. And now we have roughly 500 engineers in-house who are able to design and implement and follow the projects that we have implemented. So the group has become stronger. It's grown stronger over the past 3 years.

We have observed business mix evolution as well. We have made acquisitions, as you all know, in the field of gas distribution and photovoltaic energy as well as environment. Our group was mainly focused on waste treatment. And -- however, treated less than 1 million tonnes per year has now reached roughly 2 million. And we are among the top 5 companies as far as waste treatment is concerned, and we can go growing because, as you may have heard, with the M&As that we have completed recently bear witness to what I've just said. I'm not going to mention all of them, but they have all been disclosed. And the consolidation of some of the companies that we had interest in has been very relevant to us. We are working on the consolidation of other acquisitions we have made that will be completed over the next few months. This is going to be very important to ACEA. ACEA accounts for roughly 46% of the water business, and this consolidation will contribute to ACEA's Group and the synergies that such a large and accomplished group can achieve.

We issued a total of EUR 2 billion worth of bonds over the past 3 years, and they were very successful issuances. The business plan has been amended during the 3-year period, and we're having increased targets, the original targets. So these targets would lead the company to reach EUR 1.3 billion EBITDA at the end of the plan. And we still maintain this target because we are confident that we'll be able to achieve it.

On the following page, we were very -- we faced the COVID emergency very promptly. No major impact has been faced by the company. We're still working with a smart working. Up to 90% of our white collars are working remotely. The operations have never been stopped. Clearly, the most are -- risky ones have been suspended to ensure the safety of our workers, together with a very constructive and effective relationship with the trade union. So we managed to ensure the safety of all our workers on the field. So we have not experienced any problems in terms of, for instance, supply of devices to protect our workers. And we believe that the group is reacting correctly, thanks to the soundness of its business that is mainly related to infrastructure and regulated activities.

And now I would like to hand you over to Mr. Gola, our CFO, who will be reporting on the financial highlights. And I would like to grasp the opportunity to say goodbye to all those attending because, as you know, in a few days, I'm going to resign because I'll be taking office in the TERNA company. So I'm really sorry that I have to leave this company that is very dear to my heart. But as you know, the group is now going to be in good hands, and the continuity will be assured to all our projects. The team -- the management team that has been developed over the past years will remain unchanged, and I'm sure they will be able to satisfy the -- or meet the expectations of the shareholders of a Chair.

So Mr. Gola?

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Giuseppe Gola, ACEA S.p.A. - CFO, CEO, Director of Finance, Administration & Control and Director [4]

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Good evening. Thank you very much, Stefano. And thank you for handing the company over to the management team of ACEA. This is actually something very important to me and to the whole group.

Let's now comment on the Q1 2020 results. The -- in the first quarter of 2020, the group has continued to deliver growth in line with the full year targets. EBITDA reached EUR 276 million, up 12% versus Q1 2019. EBIT has reached EUR 137 million, up 3% versus Q1 2019. We have invested roughly EUR 190 million, up 26% versus Q1 2019.

During the first quarter 2020, some key events have occurred. For instance, we placed successfully a EUR 500 million bond issue with a maturity of 9 years, paying an interest of 0.50%. We signed a number of agreements to acquire some target company, notably 51% of Alto Sangro Distribuzione Gas, in line with our strategy of growing in the gas distribution market. This acquisition is going to be completed shortly. We are currently dealing with the antitrust authority before closing the transaction.

Then key events after the 31st of March, we signed an agreement to acquire 60% of Ferrocart and Cavallari companies that operate in the storage, treatment, sorting of waste, total of 145,000 tonnes per year. And we also signed an agreement to acquire 70%, 7-0%, of Simam. That is a leader company in the design, construction and the treatment of -- liquid waste treatment and in the delivery of environmental remediation projects. So this 2 acquisition will be, let's say, completed or closed during the next few weeks.

As for the COVID-19 emergency, Stefano already mentioned what the company did. Consider the financial and economic impact of COVID-19, well, I can say that the impact on the first quarter 2020 ACEA's profit and loss account, such impact is limited, thanks to the great resilience of the ACEA Groups that reflects the fact that the group operates mainly in the regulated business that accounts for roughly 85% of the consolidated EBITDA.

In the last few days of the first quarter, we witnessed a slowdown in cash generated by sales, cash inflows, but we believe that the slowdown that may last in the second quarter -- partially, the second quarter, will be offset by the end of the year. The group had already significant cash reserves, roughly EUR 800 million, at the end of March 2020. To preserve the group's liquidity and the group's rating, in the past few months, we negotiated new loans and new committed credit facilities amounting to EUR 600 million approximately. So the available liquidity plus these credit facilities would enable ACEA to meet all its obligations and service debt up to 2024 and beyond.

As for the total impact of the COVID-19 emergency, for the full year, well, we expect the total impact will have no significant effect on the results of the current year. This is why we confirm the announced guidance that we made when reporting on the 2019 full year results. So we confirm EBITDA increasing 6%/8% versus 2019 when it reached EUR 1.042 billion; then the CapEx, in line with 2019, EUR 793 million; and net debt between EUR 3.45 billion, EUR 3.55 billion.

What may happen, especially as far as net debt is concerned, is the following. When we announced this guidance, so we said that we were confident we would -- we were moving towards the low end of the range. Now we believe we'll be remaining within the range but perhaps closer to the high end of the range.

Coming to the Q1 2020 financial highlights. Consolidated revenues reached EUR 833 million, up 1.2% versus 2019. EBITDA, EUR 276 million, up 11.5% versus Q1 2019. EBIT, EUR 136 million, up 3% versus the previous year. And net profit, EUR 70.6 million, down 6.5% versus Q1 2019. And I'm going to explain this. Last year, we had some nonrecurring items that account for this difference. As for the contribution to EBITDA of the consolidation of the Acquedotto del Fiora and the new acquisitions, look at the table on the right. Acquedotto del Fiora contributed EUR 15 million in Q1 2020. Last year, it contributed EUR 1.4 million. And the Pescara Distribuzione Gas, Demap and Berg and the photovoltaic business that we developed, particularly in the second year -- in the second part of last year contributed for the difference. CapEx reached EUR 190 million, up 25.7% versus the previous year. Net debt reached in EUR 3.184 billion versus EUR 3.63 billion at December 31, 2019, and EUR 2.675 billion of -- on the 31st of March 2019.

On the following page, you see the contribution of the various businesses to our EBITDA. 85% of our EBITDA is accounted for by regulated business. Within which, 53% is accounted for by water; 37% by the energy infrastructure that include also small share of nonregulated business; 6% commercial and trading; 4% environment and the rest accounts for the balance.

Water contributed substantially with a growth of EUR 23.7 million, mainly thanks to the consolidation of the Acquedotto del Fiora and energy infrastructure that includes also part of the photovoltaic project development.

As for the other business lines, you see environment contributed negatively to the total EBITDA. This is mainly due, as we're going to hear in a minute, to the end of CIP6 on the waste-to-energy plant that had a negative impact. So it generated EUR 6.6 million of EBITDA in 2019 and nothing in 2020. Overseas grew by EUR 3.4 million, and this is mainly the consequence of an extraordinary transaction that we completed with Consorcio Agua Azul in Lima. We had 25% interest. Then we acquired the Impregilo share. We increased our interest to 44%. Changing the shareholders agreement, we consolidated our interest completely.

On Page 8, you see the details about water business. I already pointed out that water EBITDA reached EUR 145 million, up 19.5% versus Q1 2019. Such growth is mainly driven by ATO2 that grew by 11%, reaching EUR 29 million; by the consolidation of the Acquedotto del Fiora, EUR 15 million; and then all the other items, for instance, the consolidation of Pescara Distribuzione Gas. The growing EBITDA of the water business is the result of these main drivers. First of all, the application of tariff regime for third -- regulatory period of 2020-2023, according to the Arera Resolution 580. So the impact is mainly the effect -- the impact of investment on growth, the recognition of new cost components and the nonrecognition of the bonus of commercial quality. And then, as I said, the line-by-line consolidation of Acquedotto del Fiora and the acquisition of Pescara Distribuzione Gas.

On the following page, you see the results concerning the energy infrastructure business. Here, we have the acquisition of the new photovoltaic plants. At the end of 2019, we had 28 megawatts. And now we have reached 29 megawatts, and we're still developing the project of new photovoltaic plants.

EBITDA grew to EUR 101 million, up 6.2%, is mainly the result of the growth of distribution businesses. So the tariff and the effect -- the impact of tariff and the investments.

Public lighting has remained flat roughly, and generation was affected by the reduction of energy prices following the COVID crisis. So we have a negative figure of EUR 3 million, which is almost fully offset by the photovoltaic growth that grew by EUR 2.3 million. And then we also have to consider that in Q1 2019, we had some nonrecurring items amounting to a total of EUR 3 million. So you can see why there's such a negative difference.

On Page 10, you see the commercial and trading business. The commercial and trading business is growing, both in terms of number of customers and in terms of values. So we have reached 1,000,189 (sic) [1,189,000] clients, of which 414,000 belong to the free market, so they grew 4% versus the 31st of December 2019. So we're still growing constantly in the free market, and this affects to the commercial network that generated 56,000 new contracts, up 62% versus the previous year.

As for the financial highlights and the economics, EBITDA reached EUR 17 million. This despite the negative impact of the COVID-19 emergency, so mainly the drop in the energy prices. And it also suffered from the negative impact of the revised mechanism for compensating for delinquent accounts. So this led to a reduction in margin on an as protection market.

As for gas, client numbers growing 10% versus the previous year.

On the following page, we see the financial highlights of the environment business that reached EUR 12.5 million versus EUR 16.9 million in the previous year. So it -- the EBITDA is decreasing, mainly because, in the 7 months -- in the first 7 months of last year, we were still granted CIP6 incentives that accounted for EUR 6.6 million last year. So you see this difference this year, and this difference has been partially offset by the acquisition of Demap plants completed in July 2019 and the acquisition of Berg completed in October 2019 that accounted for roughly EUR 2 million positive impact.

As for CapEx, CapEx is in line with the previous year.

As I've already pointed out, we signed the agreement to acquire Ferrocart and Cavallari, 60% of Ferrocart and Cavallari that are companies specialize in the storage, treatment and sorting of waste, particularly paper, plastic and metal.

Coming to the ACEA Group's results below the EBITDA line, EBIT reached EUR 136.8 million, up 3% versus the same period of 2019. Net profit, EUR 70.6 million, down versus the EUR 75.5 million of Q1 2019. However, in Q1 2019, we had a nonrecurring item that amounted to EUR 1.5 million related to the Agua Azul Bogotà that, as I said, accounted for EUR 1.5 million of net profit last year. Then we had CIP6 incentives for the environment business that accounted for roughly EUR 5 million. Then when evaluating the impact of the consolidation -- when evaluating, sorry, the net profit of Q1 2020, the Acquedotto del Fiora was consolidated without an increase of the interest. And so this clearly had an impact on the net profit of Q1 2020.

Depreciation reached EUR 117 million, up 23%, that accounted for -- that is accounted for by the consolidation of Acquedotto del Fiora by EUR 6.3 million and then the increased CapEx that, if you remember, grew substantially versus last year, and were all growing substantially in the next few quarters. And then you see the write-downs, up 7% related to the consolidation of the Acquedotto del Fiora.

CapEx grew by 25%. 87% of which is invested in regulated business. Particularly the growth of CapEx is driven by the water business that grew by EUR 31 million, also considering the consolidation of del Fiora aqueduct. Then energy infrastructure that grew by EUR 2.5 million, mainly we invested on the photovoltaic plans. Then commercial trading up EUR 2.9 million, and this is mainly for IT systems and the capitalization of customer acquisition costs. As we said, customer number is growing. Environment, flat. We have a contribution of EUR 2.4 million to our CapEx, mainly -- in the corporate area, mainly on IT projects.

On Page 14, you see the cash flow evolution. The total cash flow in Q1 2020 absorbs EUR 122 million versus EUR 108 million in the previous year. Here, you can see the initial impact of the COVID-19 emergency mainly related to the delays in the payment to ACEA by a substantial number of customers. So since customers, our clients had to shut down, this inevitably had an impact on our -- the collection of our receivables, but we expect we'll go back to normal, and this effect will soon be offset.

For this reason, we have a change in working capital of EUR 146 million. EUR 90 million of which is accounted for by the seasonal effect. That is exactly what we experienced in Q1 2019. The seasonal effect is mainly due to the fact that in Q1, we pay for investments made in the second half of the previous year. So this is the quarter where most of the payments take place. And then we estimated roughly EUR 40 million, EUR 50 million, of course, so we cannot be precise, but there is the impact of the delayed payments following the COVID emergency. Then, as you can see, the free cash flow is roughly EUR 60 million worse than the previous year. If you look at all the other items, you see that we are perfectly in line with the previous year.

As for total cash flow, EUR 122 million, that as you can see on the following page, Page 15, leads net debt or drives net debt from EUR 3.062 billion of December 31, 2019 to EUR 3.184 billion at the 31st of March 2020. This net debt drives the net debt-to-EBITDA ratio to 3x. So we are, let's say, almost flat, and net debt equity ratio to 1.4x.

Looking at the structure of debt, 81% fixed rate, average cost of 1.93%. So you can compare the average cost of our debt that has gone down versus the previous quarters. And this is mainly thanks to the issue of EUR 500 million worth of bonds at a fixed rate of 0.50%, thereby, reducing the average cost and extended the average term to 6.16 years.

Please note that yesterday, Fitch confirmed the BBB+ of ACEA with a stable outlook. And this despite the recent downgrading of Italy's sovereign debt rating, which has led some rating agency to reconsider the rating of some Italian companies. But Fitch evidently believes that we are financially sound and, therefore, decided not to change its rating. And Moody's, Moody's rating is Baa2 with a stable outlook.

This is it. We can now start the Q&A session.

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Questions and Answers

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Unidentified Company Representative, [1]

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So we are ready to answer your questions. Mr. Donnarumma had to leave the meeting. So Mr. Gola and I, (inaudible), will be taking your questions. Thank you very much.

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Operator [2]

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(Operator Instructions) First question by Javier Suarez of Mediobanca.

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Javier Suarez Hernandez, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [3]

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And I would like to congratulate the CEO for the new office, and good luck to the new CEO. I've got 3 questions. The first concerns the net working capital. The company made a huge effort vis-à-vis last year to reduce the net working capital. The impression I got listening to the presentation is that there might be a deterioration of the net working capital, leading to an increase of net debt by EUR 100 million. Is this correct? As you said before, in the past, the net debt target was in the lower end of the range. Whereas now, you said you are moving towards the high end of the range as a consequence also of the COVID-19 impact. Is that correct?

Second question that refers, again, to the impact of the economic deceleration. Do you believe you have to increase your provisioning? So do you expect you have to increase your provisions considering the economic deceleration we are experiencing that might create problems to many of your customers?

And then the third question is mainly concerning your strategy and the need for infrastructure in Italy. So Italy definitely needs more infrastructure in the field of water. So do you have anything to report to us about the interest of the Italian government to invest on infrastructure and water infrastructure and whether this can have, of course, a positive impact on ACEA gas?

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Unidentified Company Representative, [4]

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Well, thank you very much, and thank you for your wishes because we are certainly faced -- going to face a very challenging times, but we are confident that we'll be able to perform well, nevertheless. So the impact that we expect following the COVID crisis has been estimated at around EUR 50 million rather than EUR 100 million. We, as I said, announced that we were going to remain with -- towards the lower end of the range. We'll be remaining within the range, as I said, but moving towards the high end of the range.

We also assumed roughly EUR 100 million absorption of cash for our M&A activity. Currently, considering the projects that we have been implementing, we expect roughly EUR 125 million of cash absorption for our M&A activity. So this is why we are -- we said we are moving towards the high end of the range as far as net debt is concerned. But clearly, it is difficult to estimate the impact of the coronavirus crisis because this is the first time we have ever faced such a challenge, but we have estimated roughly EUR 55 million for the full year.

As for provisioning, we haven't done anything so far in Q1. But considering that we expect to be able to recover the collection of our receivables starting this quarter, we do not expect to increase our provisions also because we have a very, again, conservative policy. So our provisioning is always very, let's say, general. So should there be a slowdown in the cash-ins, there will be an immediate impact.

As for the development of infrastructure, the strategy of the Italian government, well, clearly, ACEA is definitely willing to play an active role in the development of infrastructure in Italy that may also drive the recovery of the economic growth for the country. We expect the government will put in place measures to foster the development of infrastructure. I'm referring to the authorization on the permits process. Clearly, we are not discussing any projects specifically for the time being because, clearly, the government is now focusing on short-term plans or short-term measures for the time being. We are currently reviewing our strategic plan, and following the COVID-19 emergency and the change of our CEO, we were planning to disclose the new business plan in Q2, but I think this will be postponed immediately after the summer. Should there be clear signs of new opportunities to develop infrastructures, we will certainly be factoring them in, in the new business plan.

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Operator [5]

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Next question, Enrico Bartoli, MainFirst.

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Enrico Bartoli, MainFirst Bank AG, Research Division - MD [6]

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I would like to grasp the opportunity to thank Mr. Donnarumma for the great job and wish Mr. Gola, the new CEO, all the best. So first of all, a question about the water business. Can you provide us with more details about the growth of 11% of ATO2? To what extent that this is the result of a tariff increase because of the new cost components that can be included in the tariff? And to what extent is it related to cost-cutting? And what about the drop in the EBITDA in ATO5? And then electricity, electric power distribution reported a substantial growth of 12%. What the drivers were? Is it just the increase of RAB? Or was it the result also of cost-cutting or of one-off items? And can this trend be maintained over the next few quarters as well? And then considering the COVID emergency, the M&A -- sorry, the trend of acquisition of new clients in the free market that you showed in Q1, will it be maintained in the next few quarters as well? And then, can you tell us something about write-downs that you expect for the full year?

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Unidentified Company Representative, [7]

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All right. I'll try and answer all your questions. As for the water business, particularly ATO2, we reported a growth of 11%, which is mainly driven by tariff increase. So here, we have to consider that with ATO2, with the new tariff regime, there's no longer a commercial quality bonus awarded, but there are other cost items that are now included in the tariff and that offset by 70%, let's say, the lack of the bonus for commercial equality.

So here, we have the increase of tariff impact, but also the increase of CapEx that have a direct impact on the EBITDA of ATO2. So the sum of the 2 leads to the 11% growth that you mentioned. We believe that this can be the figure for the full year 2020.

Wait. Sorry, sorry. Wait, wait. I have to answer the other questions. So as for the question about ATO5, the reduction of ATO5 EBITDA is mainly driven by the fact that the delinquency component has been reduced in the area where ATO5 operates. And this component or this item accounts for EUR 700,000. So it accounts for the full reduction of the EBITDA of ATO5. As for energy infrastructures and particularly distribution, again, here, we have the tariff effect that grew by EUR 9 million. So roughly EUR 6 million are the result of a tariff increase, and the balance is the result of cost-cutting and EUR 1 million of nonrecurring items. So let's say 2/3 of this is related to tariffs and, therefore, to recurring item.

Then for the -- as for the question about the acquisition of new customers, Q1 performed very well, in line with the second year of 2019. Clearly, we felt the COVID impact, especially in April, when it comes to new contracts mainly because the physical channels were not operative. So we have, I mean, a hole that is -- that has been closed down, but this is a very important channel for us to sell a new -- to acquire new customers. So we expect a further reduction of new contracts in Q2, but we expect also a reduction of churning rate from free market to the protected market. So we expect the -- a drop in this quarter, but this should be offset by a reducer churning rate.

And then your final question concerned provisioning and bad debt, to cover bad debt. I haven't got the exact figure for the full year. I'll try and find it. So we are in line with the previous year. We expect EUR 80 million, EUR 90 million that is net of the Acquedotto del Fiora consolidation that would certainly increase this figure slightly, but we expect a figure that is in line with last year.

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Operator [8]

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Next question, Stefano Gamberini, Equita SIM.

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Stefano Gamberini, Equita SIM S.p.A., Research Division - Analyst [9]

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I would like to congratulate Mr. Gola. He has been appointed as CEO, and so all the best to you. I got a number of questions. About M&A, you improved your guidance from EUR 100 million to EUR 125 million. Could you tell me how many transactions have you completed? What's in the pipeline? And you're focusing mainly on the waste business. So if I understand correctly, this more -- this market is more dynamic than you expected, the waste market, I mean.

And considering the COVID emergency, you are the Italian leading company in the water business. As Mr. Donnarumma pointed out, you have a particularly talented engineering team. So can we expect an acceleration in the process of acquisitions and market consolidation in the business? Or don't you consider it at all because, again, water is a public common good, so public asset, so you have to be cautious?

And then you mentioned there are some one-off items. What about the impact of FoNI on Q1? And what is the estimate for the full year, again, as far as the FoNI is concerned?

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Unidentified Company Representative, [10]

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Well, as for the M&A process, I can answer the first question and the second question about water together. Definitely, we do not expect to proceed with market consolidation on the water market. If opportunities arise, considering we are the leading Italian company in the water market, of course, we'll be certainly ready to [how to] opportunities and evaluate them. Currently, we are not considering any acquisitions of targets in the water market. We are still working with the companies that we have an interest in, that are not consolidated, to replicate transactions like the Gori or the Acquedotto del Fiora transactions when the conditions -- the right conditions prevail, of course. So we may, in other word, change the rule of governance and we may become the controlling shareholder. And at that point, we can consolidate the results of such companies but also manage them more directly and more effectively. We are currently working on this, but I cannot tell you now when we'll be able to complete such transactions. As for the M&A activity, we already announced some contracts that we have signed. Simam, Ferrocart, Alto Sangro Distribuzione Gas, these are all contracts that have already been signed, and therefore, they will have an impact on our cash flow for 2020.

Then we are considering other targets in the field of waste treatment. And we are still developing the photovoltaic product, focusing on 2 main aspects. First, the acquisition of photovoltaic plants. I'm referring to plants that are still granted incentives, so they could have a positive impact on the cash flow of our M&A activity. And we are focusing also on, let's say, primary plans. Considering the drop in the energy prices, we'll be reconsidering our positioning as far as the primary photovoltaic plants that are not granted incentives. So currently, we can estimate roughly EUR 125 million in terms of net debt increase following M&A activity. But again, based on the transactions that we expect to -- will be closed in the next few months. But currently, of course, I cannot disclose anything certain because there's nothing certain.

As for the question about FoNI, ATO2, in particular, the FoNI impact on the EBITDA of ATO2 in Q1 is roughly EUR 10 million. And the estimated impact of FoNI on the full year EBITDA is EUR 35 million divided almost, let's say, regularly on the -- by the 4 quarters.

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Stefano Gamberini, Equita SIM S.p.A., Research Division - Analyst [11]

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If I may ask another question, what is the -- let's say, what is the share of digital payments out of total revenues? And what is the share of physical payments?

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Unidentified Company Representative, [12]

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Well, I haven't got precise figures, but I can tell you that the protected market customers are slightly different than the free market customers. But let's say that, on average -- let's say that what is relevant to us is the difference between clients who use different means of payments and clients who have their bills charged directly on their current accounts. These clients that have their bills charged directly on their current accounts account for 35% of the total, 3-5 percent of the total. So the balance use different ways of payment like money or cash, I mean, or they go to the tobacconists to pay the bills. And considering the closing down, there's been a slowdown because these customers suddenly could not go out to pay their bills. But we expect them to go back to their normal payment means as soon as the emergency is over.

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Operator [13]

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Next question, Mr. Oggioni, Banca Akros.

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Emanuele Oggioni, Banca Akros S.p.A., Research Division - Analyst [14]

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I also would like to congratulate the new CEO for the appointment and for the new adventure that he is going to face. So a couple of questions. First, on commercial and trading business. So the new macroeconomic scenario in Italy, may this open up new opportunities for you as it has been the case with the waste business or renewable energy sources business in the past. So considering the new macroeconomic scenario that has materialized in Italy, do you expect to be able to, again, act as market consolidators, acquiring companies that are facing difficulties? And then again, about commercial trading, I would like to try and understand when will you be able to feel the positive impact of...

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Unidentified Company Representative, [15]

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We do apologize. We do not hear you. Sorry. We cannot hear you properly. Can you repeat the question because we cannot hear you?

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Emanuele Oggioni, Banca Akros S.p.A., Research Division - Analyst [16]

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So again, my second question is the following. When do you expect you'll be able to feel the benefit of lower procurement cost following the drop in the commodities prices? So when do you expect you will be able to feel the positive impact of this drop? And then a final question about your expectations, future expectations. What do you think the greatest benefit would be for ACEA benefit following the measures adopted by Italian government to revitalize the Italian economy?

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Giuseppe Gola, ACEA S.p.A. - CFO, CEO, Director of Finance, Administration & Control and Director [17]

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Well, thank you very much. Thank you for all the congratulations. And I do hope everything will be fine. I understood your question about M&A activity in the commercial and trading business. I do not expect we'll be able to change our positioning or our strategy following the COVID emergency. Certainly, M&A opportunities at more reasonable prices, at lower prices may arise on the market. When I say lower, I mean, lower than last year or lower than the previous years. But I do not expect that we'll be changing our positioning in this market because we do not think this investment generates a reliable return, as is the case with the photovoltaic plants or regulated infrastructures or waste treatment. This is why we'll be focusing our M&A activity on these businesses rather than on the commercial activity, even though I believe that the prices that were paid for acquisitions in this market in the past were definitely too high.

As for the positive impact of the drop of procurement costs, well, I do not expect that we'll be feeling this impact this year because we know that such impact generally have a wider time horizon. So we may be feeling this impact next year, mainly.

And then your final question. I think of the decree, the May decree has finally been adopted. But I still do not know what measures the government will adopt after the COVID emergency to again revitalize the Italian economy. So currently, I'm not able to quantify the impact or the positive impact on us. So we expect that the mid-, long-term measures that the government will adopt, that should make the funding of infrastructure development easier. Well, we believe that we may play a role in the water market, in particularly since we are positioned at the center of Italy, but we play a role also in the south. So, so far, this is what I can tell you about this.

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Operator [18]

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(Operator Instructions) Ladies and gentlemen, there are no more questions.

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Unidentified Company Representative, [19]

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Okay. Thank you very much. The IR team is certainly available to take your questions. Thank you very much. And we'll certainly be reporting all your best wishes to Mr. Donnarumma. Okay. Thank you very much and let's hope for the best. Thank you very much.

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Operator [20]

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This is the Chorus Call operator. The conference call is over. You can disconnect. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]